The Importance Of Search In Next-Gen T/V Business Model

The “golden age” of television (1950s and 1960s) offered limited offerings (and channels) of high-rated programs easy for viewers to find. Consumers now have an overwhelming
number of choices, and must spend more time identifying their options. In the 1980s scrolling electronic programming guides (EPGs) appeared on cable systems, and in the late 1990s these became
interactive program guides (IPGs) --which, combined with digital video recording in the 2000s, allows viewers to search for, record and replay the programs they want. With 50%+ U.S. household penetration of DVRs within the 80%+ U.S. cable, teleco and satellite subscriber homes, consumers are paying a lot to program their
own “personal channels” of recorded and stored content. With thousands of T/V (television/video) choices now available each moment, the search function is a vital choice management tool.
Here’s a look at the current and future role of T/V search from the perspective of four key stakeholders:

1) Viewers will need more and
more help finding the programming they want as new platforms (online, tablets, smartphones) are used to access new delivery formats (linear, time- scheduled TV, video-on-demand (vod), pay-per-view
(PPV) and “TV Everywhere”). Without great search, the time and energy consumers save in commercial fast-forwarding and time-shifting could be lost to major “hunter-gatherer”
activity. Already many cable, telecom and satellite distributors have sophisticated search functions within their IPGs supporting search/DVR-record activity based on keywords. For instance, the name
of a sports team can be set through search to auto-record all games the team is playing, when, for example, all hockey games are initially organized in lists under “NHL Hockey” with
sub-menus by game/teams/dates/times. Because cable, teleco and satellite operators can comprehensively organize the viewing experience and continually improve the search and record technology,
viewers gain a special experience that cannot be replicated (yet) on the Internet for “cord-cutters.”

2) Advertisers have the
most to lose short-term in the current stage of “search and record” technology, as the viewer’s power to avoid ads provides them much value in the pay TV subscription model. If
advertisers were never sure what proportion of advertising was “wasted,” it’s now certain that proportion has increased dramatically with DVR penetration, lengthy commercial pods and
high commercial clutter. Some “smart TV” or connected TV
manufacturers are exploring ads on IPGs, as are some pay TV operators; however, these tend to be more static display and less sight, sound and motion. Someday a different way of exchanging
viewer attention to ads for free or reduced-cost programming will validate the idea of contextual advertising involvement. This is inevitable if advertising is to continue its role in how content is
paid for.

3) Content producers (studio and network creators of actual programming) have largely withheld first-run content from over-the-top
(OTT) distributors like Hulu, Netflix, Amazon and others not part of the cable/teleco/satellite ecosystem in order to maintain their current cash cow. As advertisers tire of paying for
commercials that are skipped by viewers, and younger audiences comfortable with search tools move to cord-cutting options, producers will need to find alternate means of monetizing content. Some OTT
distributors are now getting into the content creation business themselves, making
them production competitors. The younger generation of what Credit Suisse analysts call
“cord-nevers” (who would never consider subscribing to cable or satellite for content they can eventually get via wireless devices including smart or connected TVs) may never know broadcast or cable networks as the primary
sources of T/V content. As producers expand distribution channels to reach them, search will be a key element for finding these younger audiences, and vice versa.

4) Cable/teleco/satellite distributors (Pay TV) love the linear model for its dual revenue stream and because they are able to promote program
viewing within programming, driving viewer awareness and sampling of new programs, new seasons and special events. As search increases viewers’ ability to go anywhere to find quality programming
and avoid ads, this “in-program” marketing option is weakened. In DVR homes, the interactivity of each system’s IPG allows recording right from search, a feature OTT providers
can’t touch. Smartly, many distributors also include VOD and PPV programs along with linear schedules in current search functions. This will be important to the adults 18-49 audience that
advertisers crave, who grew up on Internet search where everything is a click away, and ads are far less invasive than on traditional TV. Cable and satellite providers are already seeing some subscription declines due in part to this
dynamic.

There are four major players outside of the cable/telco/satellite ecosystem currently able to provide T/V content who excel at search. They all use Internet broadband
wireless to fuel their content ambitions and have an added skill set: the “predictive recommendation” logarithms that shape search results according to the user’s past behavior and
trends of similar searches. These companies are of course Google, Apple, Amazon and Microsoft. Their Internet selling platforms, along with predictive recommendation capabilities, will be
a more valuable organizing feature as viewers face an explosion of OTT, VOD options.

Rumors of an Apple or Google “Smart TV” entry abound, Microsoft’s already real X-Box Live
technology, and Amazon Prime’s recommendation platform -- all these are strong starting points from which to offer search-based, cord-cutting options highly desirable for the up-and-coming
generation of T/V users. If any of these companies can get the search function right, they could ultimately move to the front of the race to be primary gateways to content -- relegating
traditional, legacy cable and satellite operators and media companies to serve the aging baby boomers and modern-day Luddites averse to technological change.